Facebook stock plummets on day two of trading

Facebook stock has fallen more than 10% on its second day of trading, after already having had problems on its opening day of stock trading.

In fact, there were so many issues on Friday that the Nasdaq is reportedly changing its IPO procedures, and underwriter Morgan Stanley had to step in to defend the US$38 opening price.

For a while though, things looked good, with the price climbing to US$42 in late Friday trading. Today’s pricing represents a 25% decrease from that high.

The performance of the stock led many to question whether or not Facebook and its underwriters had been overly ambitious in the price they set for the IPO.

“It was just a poorly done deal and it just so happens to be the biggest deal ever for Nasdaq and they pooched it, that’s the bottom line here,” Joe Saluzzi, co-manager of trading at Themis Trading is quoted as saying by news agency Reuters.

It’s worth remembering that a couple of tech companies have seen their stock prices fall after going public. Perhaps the most obvious example in recent times is that of Groupon. The group buying site went public in late 2011, with its stocks rising from their initial asking price of US$20 to US$31. A couple of weeks later, however, they fell 15%.

According to Reuters, investors are becoming wary of the risks associated with buying Facebook stock.

“Investors are increasingly aware of the risk embedded in the stock price. There are real concerns about growth and advertisers’ frequent lack of certainty how best to use Facebook, along with rising costs and ongoing acquisition risk,” it quotes Brian Wieser at Pivotal Research Group as saying.

“At $38, the stock is priced for perfection in a manner that implied that risks were negligible.”

Author | Stuart Thomas

Stuart Thomas joined the Burn Media team in 2011 while finishing off an MA in South African Literature. Eager to prove his geek credentials, he allowed himself to be thrown in the deep and did his best to stay afloat. When not fused with his keyboard, you can find... More